When you need to competitively procure a product or service from prospective vendors, determining what type of solicitation tool to use can be confusing. Do you use an RFQ or an RFP? What is the difference between the two? While they may sound similar, there are in fact specific use cases for each one.
Let’s take a look at the main differences between these two methods of procurement.
Request for Quotation (RFQ)
A Request for Quotation, or an RFQ, is a method of procurement used to obtain price quotes from vendors. RFQs are most commonly used when:
- You have a commodity-style procurement (i.e. goods rather than services)
- Exact quantities and requirements are known
- Price will be the primary evaluation factor used to determine a winning vendor
Take the following procurement for example, which illustrates when an RFQ is appropriate:
A procurement manager needs to purchase 25 new corporate laptops. The computers must have a certain type of processor, a hard drive with at least 500GB of storage, at least 18 hours of battery life and a one-year warranty. The procurement manager knows exactly what her requirements are, and all she is looking for from vendors is pricing information.
In summary, you should use an RFQ if the following are true:
- What information do you have? Extremely clear details about the product or service you require.
- What do you need vendors to provide? Pricing.
- What is your primary goal? To get the best price.
Request for proposal (RFP)
A Request for Proposal, or RFP, is a method of procurement used to obtain detailed proposals from vendors for products or services (and is typically much more formal than an RFQ). RFPs are most commonly used when:
- You are dealing with a large, complex procurement
- You understand your project objectives but likely do not have well-defined specifications
- You will select a vendor based on the creative solution they propose (not necessarily the vendor with the lowest cost).
Take the following procurement for example, which illustrates when an RFP is appropriate:
An organization is having trouble tracking down information about their vendors and contracts. They do not have a central database or system to store that type of information. The organization knows they need a vendor management system, but they don’t know where to start. They need to find a vendor who has the subject matter expertise to help identify requirements for this project, and who can implement a vendor management system.
When you use an RFP, you give the vendors enough information to understand what your project objectives are but you allow the vendors to apply best practices and creativity when developing their proposals. It is important to remember that the flexibility you provide to vendors should be limited to the solution they present, not the format of their proposals. In order to efficiently evaluate proposals side-by-side, you should require vendors to be consistent in how they develop their proposal documents (i.e. key topics to address, order of sections within the proposal, etc.).
In summary, you should use an RFP if the following are true:
- What information do you have?You understand the project objectives, but need help defining the exact details of how to accomplish it.
- What do you need vendors to provide? A creative solution.
- What is your primary goal?To select a vendor that will help you achieve your project objectives.
Which one is best?
The answer simply depends on what you need from vendors. If all you are looking for is pricing information and the lowest cost product, an RFQ is most appropriate. If you need a vendor to provide you with a creative solution to meet your business requirements, go with an RFP.
Note that sometimes a “mini-RFP” may be the best route for smaller, less complex service-based projects. Rather than developing a formal RFP with multiple project objectives and lots of requirements, you may choose to document the few requirements you have and ask vendors to provide a simple proposal.
